Agricultural commodities found their feet, at last, on
Wednesday helped by of all things the Bank of Japan, which became the latest
central bank to inject economic stimulus.
The bank, a master of quantitative easing (albeit with a questionable
record of obtaining required results) is to boost its asset buying and loan
programme by 10,000bn yen ($127bn), taking the scheme's total funds to 80,000bn
With US and European central banks already having made
positive moves in recent weeks to shore up economies in their jurisdictions, and
China talking the talk, and with Saudi Arabia acting to protect growth by
offering extra oil to main customers, markets adopted a more risk-on feel.
Tokyo shares rose
1.2%, as might be expected when Japan is a major oil importer, besides any move
by the Bank of Japan, with other Asian stockmarkets showing smaller gains.
The safe haven of the dollar
eased, improving the competitiveness of dollar-denominated assets, including
many commodities, as exports.
Copper hit its
highest since May and, importantly for crops used in making biofuels, oil
prices rose too, with Brent crude adding 0.7% to return above $112 a barrel.
Farm commodities had a better session on Chinese markets
too, to which Chicago oilseed investors have been increasingly looking in
recent days for signals to the likelihood of US exports to the top soybean importing country, besides over
the impact of talk of a ramp up releases of the crop from state stockpiles.
Dalian soybeans for January added 0.3% to 4,769 yuan a
tonne, with soyoil making a similar
gain, and for that matter corn too.
On the Zhengzhou wheat
for January rose 0.8% to 2,566 yuan a tonne, although cotton weakened a smidgen, and sugar
by 1.3%, to 5,389 yuan a tonne for January delivery.
'Supply worries have
It was a pattern repeated somewhat in the US, where cotton for December edged a fraction
lower to to 76.00 cents a pound in New York as of 09:25 UK time (04:25 New York
time, 03:25 Chicago time), given back some of the gains of its contrary rally
in recent sessions.
The Chinese cue was particularly important for New York raw sugar, given that the Chinese government has indicated that it is
to stockpile 500,000 tonnes of the sweetener from the domestic market, starting
this month, in an effort to stabilise domestic prices and support its producers.
Raw sugar shed a further 0.1%, adding to its 3% losses of
the last session, taking it to 19.43 cents a pound for October delivery.
As an extra negative pressure, "sugar supply worries in
Brazil and India have eased," Lynette Tan at Phillip Futures noted.
However, gains in Chicago grains and oilseeds were of a
different order, with wheat for
December, for instance, rising 1.9% to $8.79 ½ a bushel to recoup its losses of the last session.
The question was whether gains represented more than a dead
cat bounce, a traders' expression based on the idea that any object will rebound
if dropped from a big enough height, or whether something more fundamental was
There is actually some optimism that prices will eventually
return to strong gains, once the pressure from the ongoing US harvest, which
gives buyers a temporary supply boost on which to base demand for lower prices,
Oil World on Tuesday forecast soybean prices topping $18 a bushel "sometime in the next two
months" given an underlying situation of weak supplies, following drought
damage to South American and US crops, and apparently resilient demand.
Strong export demand "could create an explosive price
situation if China and/or other importing countries continue to buy for
shipment" in the September-to-February timeframe, the consultancy said.
Lesson from 2011
However, the harvest pressure dynamic could have some more
cards to play yet, to judge by 2011's autumn collapse in prices.
"Last year, Chicago's November soybean contract notched its
contract high at $14.65 a bushel in the week of August 29. Its harvest low was
$11.52 a bushel, in the week of October 3," Kim Rugel at Benson Quinn
"But the market came under additional pressure post-harvest
as the balance sheet grew, and did not score a bottom until mid-December at $10.94
½ a bushel on a continuous chart," ie with the January lot now the spot contract.
And there is certainly enhanced pressure this time too, with
harvest results topping downbeat forecasts.
"Yield reports on corn
and beans continue to be encouraging as producers in the north are seeing
yields above expectations and those in moisture deficit areas are generally less
disappointing than expected," Benson Quinn Commodities said.
At broker RJ O'Brien, Richard Feltes said the market faced "mounting
evidence that 2012 US soy crop is underestimated, and the realisation that the
US farmer may sell half or more of the crop off-combine given historically high
harvest price that is over $1.00 a bushel higher than spring bids".
"I suspect end users and speculators will be more willing to
probe the long side after firming basis and spreads signal near-completion of
producers' 2012 selling campaign."
The US Department of Agriculture's October Wasde report
could help settle the market too, in giving more accurate crop data, and
sorting out the "current confusion surrounding both supply and demand".
On the supply side, figures on measures such as harvested
acres, beside yields, are in dispute among investors, while US crop stocks data
next week will throw some light onto the demand picture.
Some light on demand will also be provided by export
updates, with low prices on wheat
sparking thoughts of demand on this score.
"After yesterday's hit, our wheat price is getting close to
most of the world's exporting countries price," Mike Mawdsley at Market 1 said.
"It's possible business could pick up for the US as we go
Nonetheless, after a stretch of Egypt's state grain authority,
Gasc, "tendering on almost any lower close", its absence so far this week is "notable",
Benson Quinn said.
"The market awaits word on results of Iraq's tender and
there are rumours of more demand out of Iran, but it doesn't appear to be a mad
rush for coverage at these substantially lower price levels."
That said, if dairy prices are anything to go by, where a
restocking urge has prompted a 20% recovery in two months, end-users can be as bad
as anyone else at capitalising on market bottoms.
Another signal being discussed is the apparent resilience of
open interest in Chicago derivatives, ie the number of live contracts, despite the
"It is interesting to
note the apparent inconsistency, with massive fund selling of row crop longs on
Monday versus only nominal declines in open interest," Mr Feltes said.
Benson Quinn's Kim Rugel noted that open interest in
soybeans on Monday "declined a nominal 1,749 lots on heavy fund liquidation,
indicating either new shorts have entered the market or commercial was active
buyer on the way down.
"With large volume on a limit down move, I would tend to
side with new buyers coming into the market."
Certainly, buying was the order of the day early on
Wednesday, when soybeans for November added 2.1% to $16.74 a bushel.
Corn for December was 1.3% higher at $7.49 ¼ a bushel.